This article is about whether, in NSW, a Strata Plan needs to submit a tax return.
Table of Contents:
- QUESTION: If we fund solar panel installation from the Capital Works Fund, can the Admin Fund progressively transfer funds (i.e. from savings in energy costs) to replenish the capital works fund?
- QUESTION: Can trust funds be moved between the administration fund and the capital works fund with an AGM vote?
- QUESTION: Our Strata Management Company supplies us with a “facsimile bank statement”. Can we request the original bank statement and details of who funds were disbursed too?
- QUESTION: When is our owners corporation required to register for GST? Is it when income from all sources exceeding 150k per annum, or when accumulated funds are in excess of $150k?
- QUESTION: Should Section 184 Certificate activity show up in Owners Corporation financial records? Should the OC Financial Records indicate the S184 Certificate payment coming in and then that payment going to the strata manager?
- QUESTION: Is an Owners Corporation able to identify whether their strata management company uses a ‘single pooled trust account’?
- QUESTION: What is the best accounting package for SM to use that provides the greatest transparency for the Owners Corporation?
- QUESTION: Where should the income (refund) show in the financial statements for the return of GST?
- QUESTION: What accounting system do Strata Managers need to use? MYOB or Xero etc.
- QUESTION: Does our Strata Scheme need to submit a tax return? Our ONLY income is from the owners corporation fees for maintenance and administration. Does this mean there is no assessable income?
Question: If we fund solar panel installation from the Capital Works Fund, can the Admin Fund progressively transfer funds (i.e. from savings in energy costs) to replenish the capital works fund?
Answer: The only way of doing this would be to increase levies in the Capital Works Fund.
Section 76 of the Strata Schemes Management Act prohibits the transfer of funds between Admin and Capital Works Fund.
The cash can be moved, however where this occurs, a special levy is required to replenish the fund that has had funds borrowed. On this basis, it would not be possible to transfer the energy savings from the Admin Fund to the Capital Works Fund on a permanent basis without section 76 applying. The only way of doing this would be to increase levies in the Capital Works Fund.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
Question: Can trust funds be moved between the administration fund and the capital works fund with an AGM vote?
Answer: Physically they can be moved, however section 76 of the Act states that where this occurs, the Owners Corporation must raise a special levy within 90 days to replenish the amount transferred.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in Strata News #592.
Question: Our Strata Management Company supplies us with a “facsimile bank statement”. Can we request the original bank statement and details of who funds were disbursed too?
Answer: The strata agent should be able to provide you with a bank statement or worst case, a printout from the bank website.
Yes, the strata agent should be able to provide you with a bank statement or worst case, a printout from the bank website. You could be present when they do this in order to verify the statement is correct. A general ledger report or cash payments report could be viewed with the bank statement print out to see who has been paid. It sounds as if an audit would be warranted to confirm the payments with invoices.
More than one contractor has complained to me that he has been told he has to give 20% of the job value to the strata managing agent.
It is very difficult to obtain evidence to prove these activities as both parties are implicated in corrupt behaviour and often the payments come from the supplier directly to the strata manager’s personal account. If the supplier is prepared to provide evidence of this nefarious behaviour, it can be brought the Department for prosecution.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in Strata News #589.
Question: When is our owners corporation required to register for GST? Is it when income from all sources exceeding 150k per annum, or when accumulated funds are in excess of $150k?
Our strata Plan has levies approaching $150k but has not and will not exceed that income, including other incidentals like interest penalties etc. for at least the next year or two.
Our current accumulated capital fund balance will be in excess of $150k shortly and we are being told that we must register for GST as the $150k threshold includes current balances.
While we have no objection to registering, we thought it was only mandatory when actual income for the year exceeded $150k.
Are we required to register for GST when income from all sources exceeding 150k per annum, or when accumulated funds are in excess of $150k?
Answer: When a building is projected to exceed the $150K threshold, it is at this time that they must register for GST.
The GST Act is very clear. When a building is projected to exceed the $150K threshold, it is at this time that they must register for GST as their projected turnover will exceed the $150K at that point in time (date of the meeting agreeing to raise levies in excess of $150K). The accumulated funds brought forward is not relevant to the need to register for GST.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in the May 2022 edition of The NSW Strata Magazine.
Question: Should SSMA 2015 Section 184 Certificate activity show up in Owners Corporation financial records? Should the OC Financial Records indicate the S184 Certificate payment coming in and then that payment going to the strata manager?
Answer: Yes. It is a trust account requirement for the income and associated expenses to be shown in the Plan’s financial report. It is trust account money and therefore has to be deposited and paid out of the trust account.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in the April 2022 edition of The NSW Strata Magazine.
Question: Is an Owners Corporation able to identify whether their strata management company uses a ‘single pooled trust account’?
Answer: You would have to ask the strata manager. This will not be indicated in the financial report.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in the April 2022 edition of The NSW Strata Magazine.
Question: What is the best accounting package for SM to use that provides the greatest transparency for the Owners Corporation?
Answer: See if your Strata Manager’s software provides lot owners with 24/7 access to the owners corporation records. This helps with the transparency of the management of the scheme.
Caren Chen, TINWORTH & CO
Strata Manager use different software and Strata Management companies also develop their own software systems. Regardless of what software, they all have software built in with an accounting system to help them to manage their trust account, and all of their individual clients.
It’s very hard for us to say which one is better, but I think it’s up to your Owners Corporation and it’s up to you as an owner to get involved and ask your strata manager. See if they can provide regular information or provide you with access to the software to check records. Rather than waiting for them to tell you about the records, or collect the records you would like to see, it is much better to be more active and ask.
Rod Laws, TINWORTH & CO
I certainly agree. I think the way technology is heading, a good majority of the software platforms are going online so that at any point in time an owner can log in. They can see the financial position of the Owners Corporation. If the roof is being repaired and the agent has put quotes out those quotes should be up on the website so that owners can log in and they can see those things. This helps with the transparency of the management of the scheme.
Caren Chen & Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in Strata News #553.
Question: Where should the income (refund) show in the financial statements for the return of GST?
Answer: The way that is accounted for, is in a liability account in the balance sheet called GST payable.
Every taxpayer in this country whether you’re an individual, a company, an Owners Corporation, that is registered for GST, you are an unpaid employee of the Australian Taxation Office.
GST is a tax that you collect on levies. It’s a tax that you pay on your expenses, your repairs, and whatever is left over, you hand over to the government. The way that is accounted for, is in a liability account in the balance sheet called GST payable. That can be negative sometimes if you’re going to get a refund.
GST does not go through the income and expenditure statement at all. All of the numbers in the income and expenditure report are GST exclusive. This GST liability account in the balance sheet is like a clearing account. You collect GST, you pay GST out. Whatever’s left you pay to the tax office or if it’s a refund, the tax office pays to you and that GST clearing account at the end of each quarter should come to zero.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in the February 2022 edition of The NSW Strata Magazine.
Question: What accounting system do Strata Managers need to use? MYOB or Xero etc.
Answer: Aside from the standard accounting practices, there are some very distinct and specific differences in processes of accounting in a Strata Management business.
On the surface, accounting for Owners Corporations looks very similar to regular company accounting. However, aside from the standard accounting practices, there are some very distinct and specific differences in processes of accounting in a Strata Management business.
Legislation
The key element that drives many of the differences is the requirement to adhere to the relevant legislative requirements that dictate how income, arrears and expenses should be managed. Generic accounting systems such as Xero or MYOB do not have the specific capabilities for this.
Levies vs Invoices
In strata, revenue is raised by issuing levies to owners rather than invoices to owners. In each state, there are very specific requirements for how the levy notice should look, when they should be sent and how penalties, discounts and arrears are managed. Strata specific accounting software such as StrataMax has the full capabilities to handle these specifically.
Reconciliation
Another key difference is the nature of receipting of owners payments (levies) into the bank account. The number of incoming revenue items on a typical Owners Corporation is very high and they need to employ efficient accounting and levy payment systems to manage this. StrataPay is one such levy payment solution that is able to automate this with the added benefit of offering a wide range of payment options for owners. The StrataPay solution works with the Strata Accounting software to automatically receipt the funds regardless of whether paid by cash, credit card, BPAY, Cheque or EFT.
Volume
The other key difference is the number of entities (Owners Corporation) that you would be managing through one system. A typical large strata manager could potentially manage thousands of entities whereas an average size manager might manage hundreds. For them to be able to perform the required functions across their portfolio their software will need to have robust global processes to run the key accounting functions.
Joanne Brown MaxSoft Group E: joanne.brown@maxsoft.com.au P: 0421 623 516
This post appears in Strata News #348.
Question: Does our Strata Scheme need to submit a tax return? Our ONLY income is from the owners corporation fees for maintenance and administration. Does this mean there is no assessable income?
Does our Strata need to submit a tax return? Our ONLY income is from the owners corporation fees for maintenance and administration. Does this mean there is no assessable income?
We have been running our own strata affairs through our elected Strata Committee since our inception without the involvement of a strata management company.
Answer: Like all companies, a Strata Plan is required to prepare and lodge an Income Tax Return annually if it has at least $1.00 in assessable income.
Like all companies, a Strata Plan (SP) is required to prepare and lodge an Income Tax Return (ITR) annually if it has at least $1.00 in assessable income.
A Strata Plan is taxed under the principle of mutuality which is based on the proposition than an entity cannot derive income from itself (assessable income). Meaning an entity’s taxable income consists only of income and expenses derived from external sources (Non-assessable income).
A Strata Plan does not need to lodge an ITR where it has no assessable income. However, the Strata Plan is still obliged to advise the ATO of this fact in order to avoid unnecessary compliance action. The ATO has made it clear that appropriate advice of nil return is required for each individual year for which a Strata Plan is not required to lodge a return.
This also applies for a self-managed strata scheme. A Strata Plan is treated by the ATO as an Australian Public company for income tax purposes but is taxed under the principle of mutuality. Hence, whether the Strata Plan is Self-managed or engaged with a strata agency to manage their strata scheme from ATO it is still under company income tax purposes.
You can find out more on the ATO website here: About the tax return and instructions.
Caren Chen E: caren.chen@tinworth.com P: 0499 025 069 W: TINWORTH & CO
This post appears in Strata News #348.
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